Commercial Real Estate Market Outlook
Total commercial property transaction volume in 2016 was $489 billion, down 11% from 2015 according to Real Capital Analytics (“RCA”). Multifamily was the only property sector with an increase in year-over-year transaction volume. Average capitalization rates were mixed for the major property sectors in 2016 as multifamily rates fell, office and industrial rates were effectively unchanged, and retail rates rose slightly in comparison to 2015 year-end rates.
According to CBRE Econometric Advisors (“CBRE-EA”) and as detailed below, vacancy rates for the industrial and office sectors showed improvement during the fourth quarter, retail vacancy was unchanged, and multifamily recorded a small increase in vacancy levels.
Multifamily – At the end of the fourth quarter of 2016, the national vacancy rate for multifamily properties was 4.9%, up from 4.6% in the third quarter and 30 basis points higher than the rate from one year ago. Less than one-third of markets covered by CBRE-EA showed vacancy rate decreases as many markets are absorbing significant new supply.
Retail – The national retail vacancy rate was unchanged during the fourth quarter of 2016, remaining at 10.2%. Year-over-year gains in employment and personal income are providing favorable conditions for consumer spending growth.
Office – The national office vacancy level was 12.9% at the end of the fourth quarter, down 10 basis points from the third quarter 2016. While vacancy continues to fall, the pace of tightening has slowed as markets reach cyclical lows in vacancy.
Industrial – The national industrial vacancy level continued to fall in the fourth quarter of 2016, to the post-recession low of 8.2%. The vacancy rate in the industrial sector has either remained the same or decreased every quarter for 27 straight quarters, continuing the longest period of decline that CBRE-EA has ever recorded. Supply is expected to remain generally in line with demand in the coming year.